The Core Competence of the
Corporation
1
NEC versus GTE

In 1980, NEC is about 1/3 of GTE

In 1988, NEC became 1.3 times of GTE
 World leader in semiconductors
 First-tier player in telecommunications

2
Core competence!
Core Competence Logic of NEC

Build C & C (computing and communications) Committee

The way to develop core competence
 Acquisition (Strategic alliances)
 Accumulation
 Sharing
3
NEC’s Myriad Strategic Alliances

Core product : semiconductor

NEC entered over 100 alliances to aim at building
competencies rapidly and at low cost

NEC : a portfolio of competencies
GTE : a portfolio of businesses

4
The Roots of Competitive Advantage
1
2
3
End Product 1
4
5
6
End product 2
7
8
9
End Product 3
10
11
12
End Product 4
Core Product 2
Core Product 1
Core
Competence 1
5
Core
Competence 2
Core
Competence 3
Core
Competence 4
The Roots of Competitive Advantage

Definition




6
Core competence
Core product
End product
Example: 3M, Honda
What is Core Competence?
Core competencies are the collective learning in the
organization, especially how to coordinate diverse
production skills and integrate multiple streams of
technologies.




7
Companies could not have imagined all the end products
out of its core competence in the early stages!
Does not mean outspending rivals on research and
development?
Does not mean shared costs!
Differ from SBU!
What is Core Competence ?

Three tests to identify core competence
 Provide potential access to a wide variety of markets
 Make a significant contribution to the perceived customer benefits
of the end product
 Be difficult for competitors to imitate

The ways to build core competence
 Internal investment
 Strategic alliances

8
Distinguish between divesting the business and destroying
competencies
From Core Competencies to Core Products

Core products
 Link between identified core competencies and end products
 The components and subassemblies that actually contribute to the
value of the end products
 Example : Honda’s engines, Canon’s laser printer engines, Matsushita’s
VCR key components
9
From Core Competencies to Core Products

Importance of core product
 Dominant position in core products allows
 a company to shape the evolution of applications and end markets
 consistently reduce the cost, time, and risk in new product development
 economies of scale and scope
 BRAND leadership vs. PRICE leadership
10
From Core Competencies to Core Products

Different goal at each level
 at the level of core competence
 The GOAL is to build world leadership in the design and development.
 at the level of core products
 The GOAL is to maximize the world manufacturing share in core
products .
11
The Tyranny of the SBU

Compare two concepts of the corporation
SBU or Core Competence
SBU
Basis for competition
Competitiveness of today’s
products
Corporate Structure
Portfolio of businesses
related in product market
terms
Status of the business unit Autonomy is sacrosanct; the
SBU “owns” all resources
other than cash
Resource allocation
Discrete businesses are the
unit of analysis; capital is
allocated business by
business
Value added of top
Optimizing corporate returns
manage ment
through capital allocation
trade-offs among businesses
12
Core Competence
Interfirm competition to
build competencies
Portfolio of competencies,
core products, and businesses
SBU is a potential reservoir
of core competencies
Businesses and competencies
are the unit of analysis: top
management allocates capital
and talent
Enunciating strategic
architecture and building
competencies to secure the
future
The Tyranny of the SBU

Some troubles with SBU
 Underinvestment in developing core competencies and core
products
 Imprisoned resources
 Bounded innovation
13
Developing Strategic Architecture

What is strategic architecture？
 A road map of the future that identifies which core competencies to
build and their constituent technologies
 Make resource allocation priorities transparent to the organization
 Establish objectives for competence building
 Example : NEC’s C&C, Vickers, Canon, Honda
14
Developing Strategic Architecture

Different companies, different strategic architectures
 Three points
 Tree
 The corporation organized around core products
 Core competencies
15
Redeploying to Exploit Competencies




Core competencies are corporate resources and may be reallocated by
corporate management
Top managers ask businesses to identify the projects and people closely
connected with them
A reward system must be settled to benefit SBU manager when he made
some positive contribution
The positive contribution of the SBU manager should be made visible
across company
 Example : Canon and NEC

People within corporation
 Early in their careers ─ a rotation program
 In midcareer ─ cross-divisional project teams
 Finally ─ competencies carriers should be regularly brought together
16
Conclusion
17

Core competencies are the wellspring of new business
development.

Win manufacturing leadership in core products and capture
global share through brand-building programs.